Concentric Partner Letter #30: Run On The Banks, The Defining Moment For Bitcoin?
We have recently witnessed the collapse of Silicon Valley Bank despite them holding substantial funds in ‘risk free’ government bonds. The result was the Fed being forced to bail out depositors at taxpayers’ expense, even though equity and bondholders were wiped out. This was followed by the government driven rescue sale of the 166-year old institution Credit Suisse, once again with significant losses for equity and bondholders.
The conclusion is that our financial system is fragile – there is so much debt in the system that high interest rates cannot be sustained. Who knows when the next crisis will occur? Will high levels of debt and consumer mistrust in the financial stability of mainstream financial institutions lead to further failures of banks, student debt providers, credit card companies, BNPL providers etc ?
How can businesses mitigate such risks? Could one solution be to hold bitcoin as an integral part of their treasury funds, to help reduce risk in day-to-day operations? Even an allocation of 5-15% of the free cashflow through Bitcoin could reduce counterparty risk. Thus providing immediate liquidity into any currency, anywhere on the planet 24/7. There are no middlemen required, so no dependencies on legacy banking infrastructure. The result is less volatility because you are not liquidating the asset every day to pay for regular expenses.
Currently the risk is having your business dependant on “A” rated banks that can collapse within 24 hours. Bitcoin sits outside this system and so can act as insurance if the fiat system fails for whatever reason. Could the current environment and the turbulence that ensues be the defining moment for Bitcoin?